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Our due diligence continues

Due diligence

For financial professionals only

‘All good things must come to an end’. And that is exactly what happened to the longest bull run in US stock market history last month.

No one anticipated this. Covid-19 has truly taken markets by surprise and presented a black swan event which couldn’t have been predicted. Markets are shocked and have reacted in the only way they know how, and at unprecedented speed.

Our quantitative and qualitative due diligence processes have served us well over the past 12 years and will continue to do so. This proven approach, with risk at its core, means we invest in high quality fund managers that can navigate through periods of uncertainty. As a result, the only change most of us in the Parmenion investment team have experienced is our commute.

We have simply adapted to a new way of working.

For example, we have created a central hub for conversation-style update notes to replace the discussions we would ordinarily have around our desks.

We have divided up asset classes to give each member of the team a clear focus and to avoid repetition of work. To remain generalist in our views, we are rotating those asset classes fortnightly.

As a team we have had direct contact or listened to calls or video conferencing with many fund managers, economists and market strategists across the range of asset classes we invest in. We have been sharing some of these insights in our weekly Covid-19 webinars, and look forward to sharing more in the coming weeks.

We are in a rapidly changing situation where news flow is vast, and an important part of our role is taking it in and analysing how it might affect your portfolios.

Hold your nerve

At times like this, investment discipline often comes unhinged. Fear can take over and lead to non-rational thinking. This is not a time to throw the long-term investment handbook out of the window.

As advisers you have probably fielded calls to move down risk grades or uninvest all together. In some circumstances that might be essential but for most clients, if a risk grade was right for them 4 weeks ago, it probably still is today.

Looking beyond the here and now

We are naturally interested in how each of our chosen fund managers have performed through the recent sell off. However, our initial research process isn’t based on a month’s track record, so neither should our ongoing due diligence. This sell off has been brutal and who knows if the bottom has been reached. But our job doesn’t change. We know there is risk in every fund we invest.

What’s important is being aware of that risk. The skill is in controlling it by blending and diversifying exposures across different manager styles. This may sound counter intuitive, but a resounding message we are hearing is one of optimism from managers across all different asset classes.

Don’t get me wrong – there are many risks still out there, but sometimes out of chaos comes opportunity, and we are interested in how our active managers are taking hold of that.

In the grand scheme of things, there are greater concerns than investment returns right now. Rest assured we continue to work hard on your behalf, and, more importantly, we hope you all stay safe and well.



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